Service Today (NOW – Free Report) reported the first quarter of 2022 adjusted earnings of $ 1.73 per share, beating the Zacks Consensus Estimate of 2.37% and improving 13.8% year-over-year.
Revenues of $ 1.72 billion exceeded the consensus mark of 1.71% and increased 26.6% year-over-year. After adjusting for forex, revenues of $ 1.76 billion rose 29% annually.
Subscription revenues improved 26% annually to $ 1.63 billion. After adjusting for forex, subscription revenues rose 29% annually to $ 1.67 billion.
Professional services and other revenue increased 36% annually to $ 91 million. After adjusting for forex, professional services and other income jumped 39% on a year-over-year basis to $ 93 million.
ServiceNow benefits from the increasing use of its workflows by businesses undergoing digital transformation. The company now has 1,401 total customers with more than $ 1 million in annual contract value, representing 24% year-over-year growth of customers.
The renewal rate was 98% in the reported quarter compared to 97% reported in the previous quarter.
During the reported quarter, ServiceNow closed 52 transactions with more than $ 1 million in net new annual contract value, representing 41% year-over-year growth.
As of March 31, 2022, current outstanding performance obligations (“RPO”) of $ 5.69 billion increased 29% year-over-year. On an ongoing monetary basis, the current RPO is up 30.5%.
RPO, on an ongoing monetary basis, rose 31.5% year over year to $ 11.6 billion.
Operation Details
In the first quarter, the non-GAAP gross margin was 82.6%, up 70 basis points (bps) on a year-over-year basis.
The total subscription margin of 86.5% expanded by 90 bps annually. Professional services and other gross margin was 14.3% compared to the previous quarter’s figure of 13.4%.
Total operating expenses, on a non-GAAP basis, were $ 986 million in the reported quarter, up 32.7% year-over-year. As a percentage of revenues, operating costs increased 260 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin contracted 200 bps on a year-over-year basis at 25.4%.
Balance Sheet and Cash Flow
Beginning Mar. 31, 2022, ServiceNow had cash and cash equivalents, and short -term investments of $ 4.01 billion compared to $ 3.30 billion on Dec. 31, 2021.
In the reported quarter, cash from operations was $ 863 million compared to $ 844 million in the previous quarter.
ServiceNow generated free cash flow of $ 770 million in the quarter, up from $ 744 million reported in the previous quarter.
Guidance
For the second quarter of 2022, non-GAAP subscription revenues are projected to be between $ 1.715 billion and $ 1.720 billion, suggesting an improvement of 29% annually.
ServiceNow expects the non -GAAP operating margin to be 22%.
For 2022, ServiceNow expects non-GAAP subscription revenues to be $ 7.155- $ 7.170 billion, suggesting a 28.5% increase from last year’s reported number.
ServiceNow expects that the gross margin of the non-GAAP subscription will be 86% and the non-GAAP operating margin will be 25%. Moreover, the non-GAAP free cash flow margin is expected to be 31%.
Zacks Rank and Stocks to Consider
Currently, ServiceNow holds Zacks Rank #4 (Sell).
ServiceNow shares in the Zacks Computer & Technology sector have not performed well to date. While NOW shares were down 28.1%, the Computer & Technology sector was down 23.7%.
Camtek (CAMT – Free Report), CDW (CDW – Free Report) and Fabrinet (FN – Free Reports) are some better ranked stocks that investors in the broader sector can consider. All three stocks have Zacks Rank #2 (Buy). You can find the complete list of Zacks #1 Rank (Strong Buy) stocks today here.
CAMT shares were down 36.4% compared to the sector’s decline of 23.7%. The company is scheduled to report in the first quarter of 2022 on May 12, 2022.
Shares of CDW are down 19.8% year to date. The company is scheduled to report results for the first quarter of 2022 on May 4th.
Fabrinet shares are down 17.5% year to date. FN is scheduled to report the results of third-quarter fiscal 2022 on May 2nd.
.